Measuring ROI in the Public Sector Jack J. Phillips, Ph.D. March 9, 2004

Measuring ROI in Measuring ROI in the Public Sectorthe Public Sector

Jack J. Phillips, Ph.D. March 9, 2004Jack J. Phillips, Ph.D. March 9, 2004

AgendaAgenda

• Review current status of ROI implementation

• Explore the myths and mysteries of ROI

• Identify the key steps involved in the ROI methodology

• Examine the key issues involved in ROI implementation in the public sector

Paradigm Shift for a Paradigm Shift for a Results-Based ApproachResults-Based Approach

Activity BasedActivity Based

Results-Based ApproachResults-Based Approach

No business need for the program

Program linked to specific business needs


No assessment of performance issues

Assessment of performance effectiveness




No specific measurable objectives

Specific objectives for behavior and business impact




No effort to prepare program participants to achieve results

Results expectation communicated to participants




No effort to prepare the work environment to support transfer

Environment prepared to support transfer




No efforts to build partnerships with key managers

Partnerships established with key managers and clients




No measurement of results or benefit-cost analysis

Measurement of results and benefit-cost analysis




Planning and reporting is input focused

Planning and reporting is output focused



Key Measurement IssuesKey Measurement Issues

•Time?

•Costs?

•Data Collection?

•Management Support?

•Skills

Why ROI?Why ROI?

• ROI is the ultimate level of evaluationROI is the ultimate level of evaluation• ROI is a concept familiar to most ROI is a concept familiar to most

managersmanagers• ROI has a rich history of applicationROI has a rich history of application• Many top executives are requiring ROI Many top executives are requiring ROI

informationinformation

The ROI issue cannot be The ROI issue cannot be ignored!ignored!

The ROI ProcessThe ROI Process

•Reaction, Satisfaction, and Planned Action

•Learning

•Application and Implementation

•Business Impact

•Return on Investment

•Intangible Measures

….and includes a technique to isolate the effect of the program or solution.

Generates six types of data

ROI by the NumbersROI by the Numbers

• Process refined over a 20-year period

• Thousands of impact studies conducted each year

• 100 case studies published

• 2,000 individuals certified

• 15 books developed to support the process

• 500 member professional network

• ROI Process adopted by hundreds of organizations in 38 countries

PayoffPayoff

• Aligns programs to business needsAligns programs to business needs

• Show contributions of selected Show contributions of selected programsprograms

• Earn respect of senior management/ Earn respect of senior management/ administratorsadministrators

• Build staff moraleBuild staff morale

• Justify/defend budgetsJustify/defend budgets

PayoffPayoff

• Improve support for human resources/ Improve support for human resources/ learning/developmentlearning/development

• Enhance design and implementation Enhance design and implementation processesprocesses

• Identify inefficient programs that need to Identify inefficient programs that need to be redesigned or eliminatedbe redesigned or eliminated

• Identify successful programs that can Identify successful programs that can be expandedbe expanded

ROI ApplicationsROI Applications• Associate Relations Associate Relations

ProgramsPrograms• Career Development Career Development

ProgramsPrograms• Competency SystemsCompetency Systems• Diversity ProgramsDiversity Programs• E-LearningE-Learning• Executive CoachingExecutive Coaching• Executive EducationExecutive Education• Gain Sharing ProgramsGain Sharing Programs• Global LeadershipGlobal Leadership

• Organization DevelopmentOrganization Development• Orientation SystemsOrientation Systems• Recruiting StrategiesRecruiting Strategies• Safety & Health ProgramsSafety & Health Programs• Self-Directed TeamsSelf-Directed Teams• Skill-Based/Knowledge-Skill-Based/Knowledge-

Based CompensationBased Compensation• Technology ImplementationTechnology Implementation• Total Quality ManagementTotal Quality Management• Wellness/Fitness InitiativesWellness/Fitness Initiatives

Who is Using the ROI Process?Who is Using the ROI Process?Private Sector OrganizationsPrivate Sector Organizations

• Allstate Insurance• Amazon.com• Apple Computer• AT&T• Bristol-Myers Squibb• Coca Cola• Dell Computers• Deloitte & Touche• Delta Airlines• DHL Worldwide Express• Federal Express• General Motors• Georgia Pacific• Hewlett Packard

• Hilton Hotels• Home Depot• Intel• Lockheed Martin• Motorola• NCR• Nextel• Olive Garden Restaurant• PricewaterhouseCoopers• Shell Oil• Singapore Airlines• TD Bank• Verizon Communications• Wachovia Bank

Who is Using the ROI Process?Who is Using the ROI Process?Government OrganizationsGovernment Organizations

• US Department of Defense

• US Internal Revenue Service

• US National Security Agency

• US Department of Veteran Affairs

• NASA

• State of New York

• State of Mississippi

• State of Texas

• City of Richmond, Virginia

• Government of New Zealand

• Government of Singapore

• Government of Italy

• Government of Australia

• Provincial Government of Ontario, Canada

ROI QuizROI Quiz

Appropriate InterventionsAppropriate Interventions

• Performance Improvement

• Training and Learning Solutions

• Organization Development

• HR Programs

• Change Initiatives

• Technology Implementation

Public Sector IssuesPublic Sector Issues

• Absence of revenues and profitsAbsence of revenues and profits• Absence of hard dataAbsence of hard data• Whose ROI?Whose ROI?• Government services are essential and, Government services are essential and,

therefore, may not need this level of therefore, may not need this level of evaluationevaluation

• Restricted range of options to correct Restricted range of options to correct problemsproblems

An EvaluationFramework

Case Applicationsand Practice

A ProcessModel

OperatingStandards and

Philosophy

ImplementationImplementation

ROI: The Pieces of the PuzzleROI: The Pieces of the Puzzle

Evaluation LevelsEvaluation LevelsLevelLevel Measurement FocusMeasurement Focus

1.1. Reaction & Reaction & Planned ActionPlanned Action

Measures participant satisfaction with Measures participant satisfaction with the program and captures planned the program and captures planned actionsactions

2.2. LearningLearning Measures changes in knowledge, Measures changes in knowledge, skills, and attitudesskills, and attitudes

3.3. ApplicationApplication Measures changes in on-the-job Measures changes in on-the-job behaviorbehavior

4.4. Business ImpactBusiness Impact Measures changes in business impact Measures changes in business impact variablesvariables

5.5. Return on Return on Investment Investment

Compares program benefits to the Compares program benefits to the costscosts

Characteristics of Evaluation LevelsCharacteristics of Evaluation Levels

Chain of Chain of Value ofValue of Customer Customer FrequencyFrequency Difficulty ofDifficulty ofImpactImpact InformationInformation FocusFocus of Useof Use

AssessmentAssessment

SatisfactionSatisfaction LowestLowest ConsumerConsumer FrequentFrequent Easy Easy

LearningLearning

ApplicationApplication

ImpactImpact

ROIROI HighestHighest ClientClient InfrequentInfrequent DifficultDifficultCustomers

Consumers: The customers who are actively involved in the process.

Client: The customers who fund, support, and approve the project

Linking Assessment with EvaluationNeeds Program

Assessment Objectives Evaluation

Business Impact BusinessNeeds Objectives Impact

Job Performance Application ApplicationNeeds Objectives

Skills/Knowledge Learning LearningNeeds Objectives

Preferences Satisfaction ReactionObjectives

4 4

3 3

2 2

1 1

Matching Evaluation Levels Matching Evaluation Levels with Objectiveswith Objectives

Develop Develop Objectives ofObjectives ofSolution (s)Solution (s)

Develop Develop EvaluationEvaluationPlans andPlans and

Baseline DataBaseline Data

CollectCollectData DuringData During

SolutionSolutionImplementationImplementation

CollectCollectData AfterData AfterSolutionSolution

ImplementationImplementation

Level 2:Learning

Level 4:Business Impact

Level 1:Reaction, Satisfaction, and Planned Actions

Level 3:Application/ Implementation

EvaluationPlanning

Data Collection

THE ROI PROCESSCalculating the Return on

Investmentof a Business Performance Solution

THE ROI PROCESSCalculating the Return on

Investmentof a Business Performance Solution

Isolate the Isolate the EffectsEffects

Convert DataConvert Datato Monetaryto Monetary

ValueValue

Calculate theCalculate theReturn on Return on InvestmentInvestment

Tabulate CostsTabulate Costsof Solutionof Solution

IdentifyIdentifyIntangibleIntangibleMeasuresMeasures

GenerateGenerateImpactImpactStudyStudy

Level 5:ROI

Intangible Measures

Data Analysis Reporting

Collecting Collecting

•Follow-Up Surveys•Follow-Up Questionnaires•Observation On the Job•Interviews with Participants•Follow-Up Focus Groups•Program Assignments•Action Planning•Performance Contracting•Program Follow-Up Session•Performance Monitoring

Level 3

Level 4Level 4

IsolatingIsolating•Use of a control group arrangement

•Trend line analysis of performance data

•Use of forecasting methods of performance data

•Participant’s estimate of program impact (percent)

•Supervisor’s estimate of program impact (percent)

•Management’s estimate of program impact (percent)

•Use of previous studies

•Subordinate’s report of other factors

•Calculating/Estimating the impact of other factors

•Use of customer input

• Converting output to contribution - standard value

• Converting the cost of quality - standard value

• Converting employee’s time

• Using historical costs

• Using internal and external experts

• Using data from external databases

• Linking with other measures

• Using participants’ estimates

• Using supervisors’ and managers’ estimates

• Using staff estimates

ConvertingConverting

•Needs Assessment (Prorated)

•Development Costs (Prorated)

•Program Materials

•Instructor/Facilitator Costs

•Facilities Costs

•Travel/Lodging/Meals

•Participant Salaries and Benefits

•Administrative/Overhead Costs

•Evaluation Costs

TabulatingTabulating

Intangible BenefitsIntangible Benefits

•Increased Job Satisfaction

•Increased Organizational Commitment

•Improved Teamwork

•Improved Customer Service

•Reduced Complaints

•Reduced Conflicts

•Reduced Stress

Return on InvestmentReturn on Investment

Benefits / Program Benefits Costs = Ratio Program Costs

Net Program Benefits ROI =

Program Costs

Calculating ROICalculating ROI

BCRBCR = = = 3.0 = 3.0

ROI ROI == = ???% = ???%

$240,000$80,000

Total Benefits - Program CostsProgram Costs

BCRBCR = = = 3.0 = 3.0

ROI ROI == = 200% = 200%

$240,000$80,000

$240,000 - $80,000$80,000

Calculating ROICalculating ROI

ROI Target OptionsROI Target Options

•Set the value as with other investments, e.g. 15%

•Set slightly above other investments, e.g. 25%

•Set at break even - 0%

•Set at client expectations

When properly implemented, high ROI When properly implemented, high ROI values can be achieved with programs on:values can be achieved with programs on:

• LeadershipLeadership

• Team BuildingTeam Building

• Management Management DevelopmentDevelopment

• Supervisor TrainingSupervisor Training

• Sales TrainingSales Training

. . . 100% to 700% ROI is not uncommon

ROI Best PracticesROI Best Practices

1.1. Implemented as a process improvement tool Implemented as a process improvement tool not a performance evaluation toolnot a performance evaluation tool

2.2. Impact studies are conducted involving 5-Impact studies are conducted involving 5-10% of the programs10% of the programs

3.3. A variety of data collection methods are usedA variety of data collection methods are used

4.4. The effects of learning/development are The effects of learning/development are isolated isolated

5.5. Business impact data are convertedBusiness impact data are converted

6.6. ROI evaluation targets are developedROI evaluation targets are developed

7.7. The ROI methodology generates a micro The ROI methodology generates a micro level scorecardlevel scorecard

8.8. Data are being integrated to create a macro Data are being integrated to create a macro scorecardscorecard

9.9. Implemented for about 3-5% of the budgetImplemented for about 3-5% of the budget

10.10. Routine ROI forecastingRoutine ROI forecasting

11.11. Used as a tool to strengthen/improveUsed as a tool to strengthen/improve

ROI Best PracticesROI Best Practices

Building a ScorecardBuilding a Scorecard

• Provides macro-level perspective of successProvides macro-level perspective of success

• Serves as a brief report versus detailed studyServes as a brief report versus detailed study

• Shows connection of training’s contribution to Shows connection of training’s contribution to business objectivesbusiness objectives

• Integrates various types of dataIntegrates various types of data

• Demonstrates alignment between programs, Demonstrates alignment between programs, strategic objectives, and operating goalsstrategic objectives, and operating goals

Micro Level Scorecard

0

1

2

3

4

0

1

2

3

0

1

2

3

4

5

0

1

2

3

4

Macro Level Scorecard

Seven Categories of DataSeven Categories of Data

•Indicators

•Reaction and Planned Action

•Learning

•Application

•Business Impact

•ROI

•Intangibles

Scorecard ReportingScorecard ReportingFirst UniversityFirst University

Key Implementation ActionsKey Implementation Actions

•Determine/establish responsibilities

•Develop skills/knowledge with ROI

•Develop transition/implementation plan

•Conduct ROI studies

•Prepare/revise evaluation policy/procedures/ guidelines

•Train/brief managers on the ROI Process

•Communicate progress/results

• Plan for evaluation early in the process

• Build evaluation into the process• Share the responsibilities

for evaluation• Require participants to

conduct major steps

• Use short-cut methods for major steps

• Use sampling to select the most appropriate programs for ROI analysis

Cost-Saving ApproachesCost-Saving Approaches

• Use estimates in the collection and analysis of data

• Develop internal capability to implement the ROI process

• Streamline the reporting process

• Utilize web-based software to reduce time

Cost-Saving ApproachesCost-Saving Approaches

Recommended TargetsRecommended Targets

Level 1 - Reaction

Level 2 - Learning

Level 3 - Application

Level 4 – Business Impact

Level 5 - ROI

100%

60%

30%

10%

5%

CriteriaCriteria

• Expected life cycle of the program

• The importance of the program in meeting the organization’s goals

• Cost of the program

• Visibility of the program

• The size of the target audience

• Extent of management interest

What Happens If We Do What Happens If We Do Nothing?Nothing?

•Budget?

•Influence?

•Support?

•Other Issues?

ROI RealityROI Reality

• ROI information is desired by clients/executives

• The ROI process provides a balanced, credible approach with six types of data

• All types of organizations are routinely using the ROI process

• The ROI process can be implemented without draining resources

• The ROI process is a long-term goal for many organizations

Status of Major Status of Major Learning and Learning and Development Development

MetricsMetrics

In In TrainingTraining Magazine’s Magazine’s 2003 Top 100 survey, 2003 Top 100 survey, 92% measure through 92% measure through Business Impact and Business Impact and 67% measure through 67% measure through

ROIROI

Program Analysis DominatesProgram Analysis Dominates

Satisfaction of Training

Participants

Impact of Training on

Performance

ROI of Training

80%88%

27%

78%

11%

63%

Organizations Utilizing Specific L&D Metrics

Organizations Wanting Specific L&D Metrics

ROI in training is a fast ROI in training is a fast growing metric . . . . 78% growing metric . . . . 78% of companies have ROI of companies have ROI

on their wish liston their wish list

Corporate Leadership Council 2002

Sample of Sample of Published ROI Published ROI

StudiesStudies

Documents

Measuring ROI in the Public Sector Jack J. Phillips, Ph.D. March 9, 2004